ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 20, Problem 4.6P
To determine
The difference between fixed and flexible exchange rate and the governmental measures to maintain fixed exchange rate.
Concept Introduction:
The method by which the currency of a country is regulated by its authority in accordance with other countries currencies and foreign exchange markets is known as the Exchange rate regime. The exchange rates are generally classified into fixed exchange rate and flexible exchange rate.
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PQ 22
What is the difference between the real exchange rate and the purchasing power exchange rate?
40.
Thailand is a net-importer. This means that they import more than they export. How does this affect the value of their currency with respect to foreign exchange?
a.their currency will not be affected
b.their currency will become strong
c.their currency will become weak
d.None of these
9-A UK trader exported goods to a Chinese trader at GBP 50,000. The exchange rate on the day of a transaction is GBP 0.250/CNY. The importer agreed to pay GBP 50,000 pounds after one month. Due to changes in the economic conditions in China, the CNY depreciates and the exchange rate moved to GBP 0.100/CNY on the settlement day. Which one of the following is the effect of the above foreign exchange rate movement on the Chinese trader?
a. The time gap between transaction and settlement date increases the cash flow to the UK trader and decreasing operating profitability
b. None of the options
c. The time gap between transaction and settlement date increases operating profitability
d. The time gap between transaction and settlement date decreases operating profitability
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